Citigroup (NYSE:C) estimates the price of aluminum could rise almost 25 percent, benefiting aluminum giants like Alcoa (NYSE:AA) and Century Aluminum (Nasdaq:CENX).
The projected price from Citigroup is predicated on what is called inventory-to-consumption rate of 10 weeks. Citigroup analyst David Thurtell said the combination of ports, producers and exchanges have stockpiles of about 7.66 million tons, which at today’s prices would value it at over $18 billion.
Prices of aluminum could also increase by around $500 a metric ton if the move toward the developing aluminum ETFs takes root, which would be based on being back up by the metal, which would generate more demand. Some are already in the process of being developed as ETFs.
Challenges to launching the aluminum ETFs, which there are reportedly three prepared to be offered, are the costs of storing the aluminum and landing funding for the ETFs.
Aluminum storage at this time in Detroit costs about 7 percent of what aluminum prices today stand at. That is considered too much, so either the price of aluminum must rise to justify those costs, or there will have to be alternative storage facilities which are far less in price to make the ETFs work.
It seems part of the problem would be solved by introducing the ETFs themselves, which would drive the prices up over time. That’s why the need for enough capital to operate until that happens is essential to the success of the emerging funds.